In summarizing the Freddie Mac report one can conclude the following: Second quarter net loss of $821 million, or $1.63 per diluted share, compared to a net loss of $151 million, or $0.66 per diluted share, in the first quarter of 2008., - Provision for credit losses of $2.5 billion, compared to $1.2 billion.

Freddie Mac (NYSE: FRE) today reported a net loss of $821 million, or $1.63 per diluted common share, for the quarter ended June 30, 2008, compared to net income of $729 million, or $0.96 per diluted common share, for the quarter ended June 30, 2007. The company reported a net loss of $151 million, or $0.66 per diluted common share, for the first quarter of 2008.

"Freddie Mac was created to ensure the continued flow of funds to America's homebuyers, and we are pleased to be fulfilling that important mission," said Richard F. Syron, chairman and chief executive officer. "At a time of severe stress in the housing and credit markets, we are successfully providing critical liquidity and stability.

"While we expect continued housing and economic weakness will affect our overall performance this year, we continue to maintain a surplus over all regulatory capital requirements. We remain committed to raising $5.5 billion of new capital and will evaluate raising capital beyond this amount depending on our needs and as market conditions mandate. We are confident the actions we are taking are strengthening Freddie Mac's financial and competitive position as well as its ability to serve the American homebuyer and will generate value well into the future," concluded Syron.

"During the second quarter, Freddie Mac continued to perform its mission, manage risk and add long-term value through expanded business opportunities," said Buddy Piszel, chief financial officer. "While market and credit conditions remained very challenging during the second quarter, as demonstrated by our increased credit-related expenses and impairments on non- agency mortgage-related securities, our credit guarantee business and mortgage portfolio both saw strong, high quality growth. Freddie Mac's revenue increased by more than 10 percent from the first quarter, including a more than 90 percent increase in net interest income. We are capitalized above regulatory requirements and we continue to have open access to the debt markets."

The company's results for the second quarter of 2008, as compared to the second quarter of 2007, benefited from certain accounting and operational changes, including the adoption of SFAS No. 157, "Fair Value Measurements," and SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115." For more information, see NOTE 1: "SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES" in the company's Registration Statement on Form 10, dated July 18, 2008.

Net loss for the second quarter of 2008 was $821 million, compared to a net loss of $151 million in the first quarter of 2008.

The key components affecting the company's net loss for the second quarter of 2008 as compared to the first quarter of 2008 were:

Net interest income for the second quarter of 2008 was $1.5 billion, up $731 million, or 92 percent, from $798 million in the first quarter of 2008. This increase was primarily driven by short-term and long-term debt funding at lower rates and strong retained portfolio growth resulting from wider spreads on fixed-rate assets. During the second quarter of 2008, the unpaid principal balance of the company's retained portfolio increased at an annualized rate of 45 percent to approximately $792 billion. The increase reflected the lifting of the retained portfolio growth cap and reduction in capital surplus requirement that both became effective in March as well as favorable purchase opportunities resulting from wider spreads.

Management and guarantee income on PCs and Structured Securities for the second quarter of 2008 was $757 million, down $32 million, or four percent, from $789 million in the first quarter of 2008. This decrease reflects reduced amortization income related to deferred credit and buy down fees as interest rates increased in the second quarter of 2008.

Other non-interest loss for the second quarter of 2008 was $593 million, compared to $58 million in the first quarter of 2008. Included in the second quarter other non-interest loss were mark-to-market losses of $2.3 billion related to the company's trading securities, offset by mark-to-market gains of $1.6 billion and $1.0 billion on the company's guarantee asset and derivatives portfolio, respectively, both due to the impact of increasing long-term interest rates.

Other non-interest loss also included security impairments on the company's available-for-sale securities of approximately $1.0 billion for the second quarter of 2008. Of this amount, $826 million was related to non- agency mortgage-related securities backed by subprime or Alt-A and other loans, due to deterioration in the performance of the collateral underlying these securities. Another contributor to these impairments was credit enhancements related to monoline bond insurance provided by one monoline on individual securities in an unrealized loss position where it has been determined that it is probable that a principal and interest shortfall on the insured bonds will occur and that there is a substantial uncertainty surrounding the insurer's ability to pay all future claims. The company also recognized impairment charges of $214 million related to certain shorter-term available-for-sale non-mortgage-related securities in its cash and investments portfolio. The decision to impair these securities is consistent with the company's consideration of sales of securities from the cash and investments portfolio as a contingent source of liquidity. This compares with $71 million of security impairments on the company's available-for-sale securities for the first quarter of 2008, none of which were associated with subprime or Alt-A and other loans.

Income on the guarantee obligation for the second quarter of 2008 was $769 million, compared to $1.2 billion in the first quarter of 2008. The decrease resulted from accelerated amortization income the company recognized on its guarantee obligation during the first quarter due to greater than expected house price depreciation.

In addition, the company recognized $121 million of income in the second quarter of 2008, compared with $226 million in the first quarter of 2008, associated with the recapture of previously recorded losses on purchased loans due to either borrower payoffs or an excess of the property values upon foreclosure over the carrying basis of these loans.

Credit-related expenses, consisting of provision for credit losses and REO operations expense, were $2.8 billion for the second quarter of 2008, compared to $1.4 billion for the first quarter of 2008. The provision for credit losses for both quarters increased due to credit deterioration in the company's single-family credit guarantee portfolio, primarily due to 2006 and 2007 loan originations, as delinquency rates increased, more loans transitioned from delinquency to foreclosure and the estimated severity of losses on a per-property basis increased. The credit deterioration has largely been driven by the continued decline in home prices and other declines in regional economic conditions, particularly in the North Central, Southeast and West regions. REO operations expense increased as a result of an increase in losses recognized on REO dispositions, due to the decline in home prices, coupled with higher disposition volumes in REO inventory, particularly in the states of California, Florida, Arizona, Virginia and Nevada.

Total credit losses, consisting of net charge-offs plus REO operations expense, were $810 million for the second quarter of 2008, compared to $528 million for the first quarter of 2008. Realized credit losses were an annualized 17.3 basis points and 11.6 basis points of the average total mortgage portfolio for the second quarter and first quarter of 2008, respectively.

The company believes that it is adequately reserved for incurred losses. As of June 30, 2008, the reserve covers approximately 2.7 times of annualized second quarter 2008 contractual net charge-offs.

Other non-interest expense for the second quarter of 2008 was $339 million, compared to $258 million for the first quarter of 2008. This increase was primarily related to increased losses on loans purchased of $120 million for the second quarter of 2008, compared to $51 million for the first quarter of 2008, due to an increase in the volume of purchases of loans with modifications during the second quarter and the continued decrease in fair value of these loans.

Income tax benefit for the second quarter of 2008 was $1.0 billion, compared to $423 million in the first quarter of 2008. This increase in benefit resulted primarily from a $1.3 billion increase in GAAP pre-tax loss and a $171 million favorable tax settlement with the Internal Revenue Service (IRS) related to the tax treatment of the company's customer relationship intangible asset.

Capital & Liquidity

Estimated regulatory core capital was $37.1 billion at June 30, 2008, which represented an estimated $8.4 billion in excess of the company's statutory minimum capital requirement, and an estimated $2.7 billion in excess of the 20 percent mandatory target capital surplus directed by the Office of Federal Housing Enterprise Oversight (OFHEO).

The company is committed to raise $5.5 billion of new core capital given appropriate market conditions and will evaluate raising capital beyond this amount depending on the company's needs and as market conditions mandate. Given the challenges facing the industry, the company expects to take actions to maintain its capital position above the mandatory target capital surplus.

Reported by Freddie Mac (This is the partial report of Freddie Mac's earnings in the second quarter).